A deadly virus in China. A rating downgrade from Moody’s Investors Service. Violent clashes over the weekend.
Welcome to Hong Kong, where reasons to sell stocks are mounting ahead of the Lunar New Year holiday. The Hang Seng China Enterprises Index fell 3.2%, the most since October 2018, while the MSCI Hong Kong Index dropped 2.7%, hitting its 200-day moving average. Life insurers and automakers were among Tuesday’s biggest decliners. Trading volume for stocks in the benchmark Hang Seng Index was 52% above the 30-day average.
Hong Kong stocks had been among the world’s best performers since early December, helped by mainland investors, gains in the local currency and an initial trade deal between the US and China. But the Hang Seng stalled at the 29,000 point level last week, and there’s been a surge in stock sales this month, which has previously foreshadowed near-term market tops.
“Investors would want to cash out before the holiday because there is so much bad news,” said Jackson Wong, asset management director at Amber Hill Capital Ltd.
“It is uncertain how the virus outbreak will develop in China during the holidays. We are holding more cash and we are avoiding travel-related stocks and some technology stocks that had already jumped a lot earlier.”
Stock indexes fell more than 1% in China, outpacing declines elsewhere in Asia, while Asian currencies were widely lower. The Chinese yuan weakened as much as 0.6% against the US dollar, its biggest drop since August, after a run of big gains.
China’s 10-year government-bond yield continued to fall, hitting a fresh four-month low on Tuesday at 3.033%.
“Most people have only very limited information about this virus, and its too early to tell how serious it is, so it makes sense for people to be defensive at this moment,” said Chi Man Wong, Honyuang Kong-based analyst at China Galaxy International Financial Holdings Ltd. He added the Moody’s downgrade likely isn’t having an impact regionally as the move was signaled by September’s reduction to Hong Kong’s ratings outlook. Since then, the city’s economy has slid into recession.
Moody’s said that “the absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody’s had previously assessed.”
Meanwhile, China’s new top official in Hong Kong urged the city to enact national security legislation, a proposal which prompted mass protests in 2003.